4SSMN135
Answer THREE questions from Section B (there are multiple parts to
each question; you must attempt all parts).
SECTION B: MANAGEMENT ACCOUNTING AND FINANCIAL
MANAGEMENT
5. Welco Ltd specialises in the manufacture of dry cider. The 1 litre
bottle sells for £3.00 each. The budget forecast shows the following
sales volumes:
Month Litres
August 400,000
September 340,000
October 300,000
November 260,000
December 320,000
January 250,000
Company policy is for closing stock levels of cider to be 20% of next
month’s sales. Stock of cider on 1 September was 80,000 litres. For
raw materials, stocks of apples, the policy is for closing stock to be
50% of next month’s usage. On 1 September, the stock of apples was
2,200 tonnes.
On average, 15 kilograms (kgs) of apples are needed to produce 1
litre of cider. Note: 1 tonne = 1,000 kg
a) For the period September to November, prepare i) the sales budget
in units and £; ii) the production budget in litres; iii) the material
usage and purchase budget in tonnes.
(12.5 marks)
b) Define the term ‘budget’ and explain the differences between a
budget and a forecast.
(4 marks)
Total marks for question 5 (16.5 marks)
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6. JCM Ltd produces a single range of refrigerators. It sold 6,250 units
in 2015 with the following results:
£ £
Sales 156,250
Variable costs 93,750
Fixed costs 37,500 131,250
Profit before tax 25,000
Less: taxation (40%) 10,000
Net profit after 15,000
taxation
In an effort to improve its product during the year 2015, JCM Ltd is
considering replacing a component, which currently costs £2.50 with a
new, more efficient component, which costs £4.50. At the same time,
it is planning to purchase a new machine costing £2,500.
a) Calculate the break-even point for the year 2015 expressed in sales
revenue (£).
(4 marks)
b) Calculate the number of units JCM Ltd would have had to sell to
earn of profit after taxation of £21,000.
(4 marks)
c) Calculate the new break-even point that will result if JCM Ltd
makes the product improvement and purchases the new machinery
in: (i) units of output; and (ii) sales revenue (£).
(5.5 marks)
d) Define the following terms: break-even point; margin of safety;
operating leverage.
(3 marks)
Total marks for question 6 (16.5 marks)
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4SSMN135
7. Greek Ltd is evaluating two mutually exclusive projects: the Alpha
and the Beta. The company’s cost of capital is 8%. These projects
have the following cash flows. Greek Ltd can only invest in one
project.
Cash Alpha Beta
flows
Year £ £
0 (25,000) (16,000)
1 3,000 7,000
2 3,000 5,000
3 4,500 3,000
4 6,000 2,000
5 8,900 3,000
6 10,700 1,500
a) Calculate for each project:
(i) Payback period
(ii) Net present value (NPV)
(8 marks)
b) Explain which project you would recommend for acceptance.
(2 marks)
c) List the four methods in capital budgeting decisions, and briefly
discuss the relative merits of each method.
(6.5 marks)
Total marks for question 7 (16.5 marks)
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4SSMN135
8. Furniture Trader Ltd makes cabinets and armchairs. Here are the
details of its May production:
(i) Cabinets
Budgeted Actual
Number of 15,000 16,000
cabinets (units)
Kilos of material 120,000 140,000
(total)
Price per kilo (£) 0.70 0.75
(ii) Armchairs
(a) Budgeted: 600 armchairs at 4 direct labor hour per chair.
Labor rate is £4.80 per hour;
(b) Actual production: 700 armchairs for a total of 3,000 hours.
Total actual labor cost is £13,500.
a) Calculate direct materials price and quantity variance for cabinets.
Indicate whether each variance is favorable or unfavorable.
(6.5 marks)
b) Calculate direct labor rate and efficiency variance for armchairs.
Indicate whether each variance is favorable or unfavorable.
(6.5 marks)
c) Identify and explain the possible causes leading to labour efficiency
variances.
(3.5 marks)
Total marks for question 8 (16.5 marks)
TOTAL MARKS FOR SECTION B (49.5 MARKS)
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